According to a report from PNC Financial Services Group Inc's economic research department, the spending gap between high-income and low-income U.S. consumers has narrowed significantly by 2026. As the boost from tax refunds fades, the labor market has become a critical test for household spending.

The PNC Consumer Health Survey, released in August, showed that total credit card spending rose 5.9% year-over-year in July, slowing from 6.4% in June but still well above the 3.8% growth rate at the end of 2025. PNC attributed the July slowdown largely to the Amazon Prime Day promotion moving to June, which pulled forward some spending.

More notable changes occurred beneath the headline figures. PNC stated that the "K-shaped" consumption pattern, which had persisted for most of the past three years, has largely disappeared by 2026, with the spending gap between high-income and low-income families narrowing substantially in July. This marks a significant shift from earlier this year.

In its June report, PNC noted a notable improvement in spending among low-income households, with the gap compared to high-income families narrowing to its lowest level since 2022. Two factors drove this convergence: larger tax refunds and improved labor market conditions. However, PNC indicated that the labor market has become a more important and sustainable driver, while the boost from tax refunds has largely been exhausted.

The fading impact of tax refunds has made households more vulnerable to rising gasoline prices. PNC reported that as fuel prices increased in July, discretionary spending saw a slight decline, suggesting consumers are more sensitive to energy costs than earlier this year.

Despite this, household balance sheets remain relatively healthy. After adjusting for inflation, median checking and savings account balances across all income groups are still 20% to 50% above pre-pandemic levels. PNC also found little evidence of an increase in the proportion of households living paycheck to paycheck.

Even as broader discretionary spending softened, spending on experiential consumption such as concerts, travel, and dining out improved in July. PNC attributed some of this strength to the World Cup final, though experiential spending has been expanding its share of discretionary spending for most of the past year.

Student loan repayment remains a potential drag on household spending. Among households required to repay, loan payments consume about 8% of after-tax income on average, with Gen Z households bearing a disproportionately heavy burden. PNC found that households that resumed repayment after the 2023 pause experienced a reduction in debit and credit card spending roughly equal to half the increase in their debt repayment, when adjusted for income.

For PNC, the sustainability of the narrowing spending gap between low-income and high-income groups ultimately depends on the labor market. The bank stated that continued improvement in employment conditions is crucial for sustaining the growth in spending among low-income households.